Why I Like Total Service Systems

| About: Total System (TSS)

Last week I added another "starter position" in a high quality company to my portfolio:Total System Services (NYSE:TSS). I would have liked to use a covered call strategy with this stock, but there are no leaps available, and the shorter term options are quite illiquid. I hope the TSS options will attract more volume in the future.

TSS provides electronic payment processing and associated services to institutions around the globe (e.g. US, Mexico, Canada, Europe, Honduras, Puerto Rico etc.). The company charges based on the number of accounts on file, transactions processed, statements mailed etc.

Here are some of the things I like about TSS:

1) High quality company. The S&P Quality rating is A+.

2) Stealth china play. In December 2005, TSS acquired a 34% equity stake in China UnionPay Data Co. (CUP Data), the data processing subsidiary of China UnionPay which is China's largest bankcard processor. In August, 2006 they raised their stake in CUP Data to 44.6%. In July 2006, they also acquired Card Tech, a London-based payment processing firm which expands their reach into the Asia Pacific, Europe, Middle East and Africa regions. TSS also does business in Brazil. Credit card and debit processing is just starting out in many regions of the world, but should have impressive growth going forward.

3) Clients. The TSS stock price has been depressed because they lost a major client- JP MorganChase (NYSE:JPM), which is taking their credit card processing in-house (Jamie Dimon has always been a big believer in bringing strategic technology in-house- it was not caused by poor service on the part of TSS). But TSS has since gained other business to compensate and over the long term has tremendous growth potential in China and other emerging market countries.

4) Ownership: Synovus Financial (NYSE:SNV) owns 81.1% of TSS and also looks like a pretty attractive investment. One potential negative (for TSS) is that Synovus management is considering a distribution of their TSS shares to SNV shareholders which could cause some short-term selling by SNV investors who do not want to own TSS separately. But I believe this "overhang" problem is already reflected in the share price of TSS.

5) TSS has attractive returns: Return on assets=15.15% Return on Equity =21.7%. These numbers have been generated with virtually no debt. (Debt/Equity = 0.012)

6) Good sponsorship: Some large holders of the stock (aside from Synovus) are: Goldman Sachs, Renaissance Technologies and Fidelity Low Price Fund (Joel Tillinghast).

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